'Indian Enron' rocks business world

News of the accounting scandal sent Satyam's stocks plummeting by 80 per cent [AFP: File image]

News of the accounting scandal sent Satyam's stocks plummeting by nearly 80 per cent and also dragged down the benchmark Sensex stock index by 7.3 per cent on Wednesday.

Trading on India's stock exchange was closed on Thursday because of a public holiday.

Inadequate fraud laws?

"We are concerned about what has happened in Satyam and the government will take all necessary action"

Prem Chand Gupta, Indian corporate affairs minister

Prem Chand Gupta, India's corporate affairs minister, told Reuters news agency: "We are concerned about what has happened in Satyam, and the government will take all necessary action to ensure these types of scandals do not take place again.

"Whatever steps could be taken will be taken."

Some analysts believe that existing anti-company fraud laws are inadequate to deal with the surge in corporate activity seen during India's recent economic boom.

Local media has reported that officials with the Securities and Exchange Board of India, which is investigating the incident, were en route to the company's headquarters in Hyderabad, southern India.

Meanwhile, the stock market regulator has ordered an investigation into buying, selling and dealing in Satyam shares.

The New York Stock Exchange ceased trading in Satyam's shares indefinitely, saying it wanted to review the news

Some investors in the company's American Depositary Receipts have already filed class action suits against the firm, lawyers confirmed.

Echoes of Enron

The incident has cast a cloud over foreign investment in Asia's third-largest economy and it's once-booming outsourcing sector, and drawn comparisons to the collapse of US energy firm Enron.

The Indian Express newspaper, in an editorial, said: "India's strength in recent years has been its ability to produce great companies, and allowing that reputation to fall by the wayside is not in anyone's interest."

The newspaper also noted that the Enron accounting scandal happened in an economy that is subject to more regulation than India.

Satyam's offices were "open and working as normal", the company spokeswoman said on Thursday, after downplaying reports that the firm's 53,000 employees were frantically looking for other employment.

Raju, who founded the company in 1987, said no other board members were aware of the accounting irregularities at Satyam - which means "truth" in Sanskrit.

The company specialises in business software and back-office services for a range of well-known multinationals.